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What Would a Rout of the Dollar Look Like?
The Washington Post tells us that the decline in the dollar in recent months: "has raised fears that what has been an orderly decline could become a rout." Really? Who has these fears, what would a dollar rout look like?
I remember reading in the Washington Post and elsewhere how the "Buy American" provisions in the stimulus package were devastating to our trading partners. Of course, these provisions just applied to a few billion dollars of steel and other goods that would be purchased with stimulus money.
Imagine that all imports soared in price by 40-50 percent due to a rout of the dollar. Suppose also that all the goods that everything the U.S. exports (roughly $1.5 trillion a year) were suddenly available in Japan, Germany, Canada and everywhere else at half of its current price, due to a rout of the dollar. No doubt our trading partners would just sit there dumbfounded as their trade surpluses turned into huge deficits, right?
In reality, the story of a dollar rout is absurd. U.S. trading partners would intervene to keep the dollar falling below levels that they considered acceptable to their economies. The dollar rout is simply a scare story that Wall Street people like to circulate for their own ends. The Post should not be repeating this nonsense.
--Dean Baker
COMMENTS (7)
Dean,
I believe value of the dollar is one of those topics in which the choice of words trumps substance. The economists and the media all refer to the dollar as "strong" or "weak". This choice of value-laden words governs public perception -- "strong" is always favored while "weak" is always scorned.
As I understand the markets, the dollar is basically a commodity just as gold, wheat and soybeans are commodities. Economists and the media do not refer to gold as "strong" or "weak". They merely report the market price of gold.
Economists and journalists could (and often do) report market price action after first using the value-laden terms. Often the reports go something like this: "The weak dollar dropped again today in currency trading. The dollar closed at XXX euros and YYY yen."
An objective report would skip the value-laden term which actually conveyed no news.
Posted by: Ron Alley | November 17, 2009 8:01 AM
So, are they ignorant, or are they simply using their media position to spread an ideological viewpoint favorable to them and their allies?
Posted by: El Cid | November 17, 2009 1:53 PM
El Cid: Nobody will ever accuse Karl Rove and the Republican media machine (of which wapo is just one outlet) as ignorant. Fascist elitist liars, perhaps, but never ignorant.
Posted by: Unsympathetic | November 17, 2009 2:32 PM
Unsympathetic,
They're just good at deceiving themselves. Newspaper executives and editors, like most people, can convince themselves that whatever redounds to their benefit is THE TRUTH. I'm sure the have, without consciously realizing it, shielded themselves from uncomfortable facts and distorted the information they receive in such a way as to deceive themselves into believing that all the nonsense they print is genuinely true and honest.
Not many people can actively and knowingly engage in activities that harm others in order to benefit themselves. Instead, they create a framework in their mind that justifies their seemingly self-serving and atrocious behavior and "proves" to themselves that what they are doing is in fact morally right. In order to do this they have to grossly distort facts and use faulty logic, but these are things that come natural to nearly everyone.
Call it what you want, ignorance or dishonesty or manipulation or whatever, but don't pretend that there's some Dr. Evil plotting to consciously create widespread destruction and pain and misery. Of course, this in no way exculpates them from the real harm they cause, but it's useless and counterproductive for us to conjure caricatures of opponents and portray the world as some kind of Good-versus-Evil comic-book plot. Leave that to George Bush and Glenn Beck and Cold Warriors and the like. Serious people shouldn't stoop to that kind of rhetoric.
Posted by: RL | November 18, 2009 12:22 AM
RL, it is downright humorous to read "Not many people can actively and knowingly engage in activities that harm others in order to benefit themselves."
If only it were true. That not many people could do that. You must be quite young to be so hopeful.
Posted by: Erich Riesenberg | November 18, 2009 7:32 AM
"In reality, the story of a dollar rout is absurd."
This reminds me of Econ 101, where the underlying article of faith is that nothing really bad can happen. Why? Because governments and their central banking colleagues and university economists are just too gosh darn smart to let anything bad happen. If they see a threat coming, be assured they will adjust their equations and tweak their spreadsheets and all will be well with the world. Fail safe! Don't worry your little head about it. But seriously, given recent history, I'm a bit surprised this article of faith remains so firmly intact.
Posted by: Hmmmmm | November 18, 2009 10:40 AM
It's nice we can rely on our trading partners to do what's best for us. Keep printing funny money, Geithner, there's nothing to worry about.
Posted by: LG | November 18, 2009 8:21 PM